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Real GDP - Essay Example

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Finance & Accounting
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There is the suggestion that the GDP downward trend has recently reversed and is increasing somewhat, since real quarterly GDP growth reached its minimum point of -6.4% during the first quarter of 2009 and went up both in the second and third quarter of 2009…

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Real GDP

There is the suggestion that the GDP downward trend has recently reversed and is increasing somewhat, since real quarterly GDP growth reached its minimum point of -6.4% during the first quarter of 2009 and went up both in the second and third quarter of 2009.Over the last few years, although there are quarterly fluctuations, there is a general downward GDP trend. Looking at annual real GDP, one can see a downward trend from 2.7% in 2006 to a slightly lower 2.1% in 2007 to the almost flat growth of .4% in 2008.The third quarter actually went into positive territory at 2.8% for the first time since the second quarter of 2008.One event that has likely contributed to the general downward trend in real GDP is the decline in housing prices, or the bursting of the housing bubble. According to the Case-Shiller housing index (Standard and Poor's, 2009), housing prices peaked in the second quarter of 2006 and declined thereafter until first quarter 2009. One direct consequence of declining home values is a decline in household wealth, which will likely lead consumers to spend less, since having less money will translate to spending less money. Furthermore, if declining home values lead to default and foreclosures, those consumers will have even less money available for spending. Given that according to the 2008 real GDP figures, consumption is 70% of GDP (U.S. Department of Commerce, 2009), lower consumption will mean lower GDP ...
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